Prominent independent economist Tarric Brooker highlights that since the fourth quarter of 2020, cumulative inflation in Australia has surged by 19%. This heightened cost environment has become entrenched, implying that although future price increases may decelerate, they will not diminish.
The severe cost-of-living pressures are mirrored in the significant decline in real wages, which as of the fourth quarter of 2024, are reported to be 6.2% lower than their peak in late 2010.
This grim wage scenario only worsens upon comparison with the Australian Bureau of Statistics' employee cost of living index. By this measure, real wages in late 2024 are sitting 10.1% below their previous peak around the first quarter of 2012.
The RBA's recent Statement on Monetary Policy provides little solace, suggesting a sluggish recovery in real wages. Expectations are that by the second quarter of 2027, real wages will still lag 5.9% behind their peak in late 2011.
Alarmingly, projections based on the RBA's forecasts suggest that a return to previous real wage peaks might not be achievable until approximately 2040.
The long-term implications for Australians are profound, with the post-pandemic cost of living crisis predicted to affect households for many years to come. Although the struggle against inflation is waning, Australian families are unlikely to see a significant relief in financial conditions anytime soon.
Hence, the road to recovery from the recent recession is expected to be prolonged, slow, and fraught with challenges.
